Clandestine removal must be proved by concrete evidence; uncorroborated wastage and record discrepancies were insufficient, while balance Modvat demand survived.

A charge of clandestine removal requires tangible, reliable and concrete evidence, not assumptions or unwarranted inferences. On the facts noted, allegations based on excess wastage, discrepancies in inward records, and alleged removal of bags in the guise of wastage failed because the department produced no direct evidence, no corroborated purchaser or consignee statements, and no reliable proof of fabricated records. The demand relating to shortage of raw material and wrongful Modvat credit was sustained only to the extent of the unreversed balance, as the shortage and corresponding credit issue were not contested. The major demand and penalties were set aside, with only the reduced credit-related demand maintained.

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Issues: (i) Whether the allegation of clandestine removal of goods by showing excess wastage was proved; (ii) Whether alleged discrepancies between the inward register and other records established clandestine removal; (iii) Whether the allegation that bags were clandestinely removed in the guise of wastage was proved; (iv) Whether the demand on account of shortage of raw material on which Modvat credit had been availed was sustainable.

Issue (i): Whether the allegation of clandestine removal of goods by showing excess wastage was proved.

Analysis: The wastage relied upon by the department was shown only up to the stage of tape production, while the material on record showed that wastage up to 10% was an accepted industrial norm at the stage of final manufacture of bags. The department produced no direct evidence of actual removal, and no buyer was examined to show clearance without duty.

Conclusion: The allegation was not proved and was decided in favour of the assessee.

Issue (ii): Whether alleged discrepancies between the inward register and other records established clandestine removal.

Analysis: The appellants produced supporting accounts, certificates, challans issued under Rule 57F of the Rules, and production records showing correlation of inward entries with job-work receipts. The adverse statement of an employee was not corroborated by cross-examination or other reliable evidence, and the records were not shown to be fabricated.

Conclusion: The discrepancies did not establish clandestine removal and the issue was decided in favour of the assessee.

Issue (iii): Whether the allegation that bags were clandestinely removed in the guise of wastage was proved.

Analysis: The explanation that defective bags were treated as wastage remained unshaken by any contrary evidence. No statement of any purchaser or consignee was recorded, and no tangible material showed clandestine clearance of bags.

Conclusion: The allegation was not proved and the issue was decided in favour of the assessee.

Issue (iv): Whether the demand on account of shortage of raw material on which Modvat credit had been availed was sustainable.

Analysis: The shortage of inputs and the corresponding wrongful availment of credit were not contested. The already reversed and appropriated amount was required to be given effect to, leaving only the balance demand recoverable.

Conclusion: The demand was sustained only to the extent of the balance amount and this issue was decided partly in favour of the Revenue.

Final Conclusion: The order confirming the major demand and penalties was set aside, and only the reduced demand relating to wrongful Modvat credit on account of input shortage was maintained against the company, while the rest of the impugned order was annulled.

Ratio Decidendi: A charge of clandestine removal cannot be sustained unless supported by tangible, reliable and concrete evidence, and it cannot rest on assumptions or unwarranted inferences.

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